1982 (11) TMI 78 - AT - Income Tax

Summary

Issues Involved:
1. Accrual of interest income.
2. Validity of the agreement for non-charging of interest.
3. Assessment of new material evidence.
4. Comparison with previous years' findings.
5. Concept of income under the Income Tax Act.

Issue-wise Detailed Analysis:

1. Accrual of Interest Income:
The primary issue was whether the interest income on deposits made by the assessee in the firm M/s Ratilal Manakji accrued during the assessment year 1978-79. The Income Tax Officer (ITO) believed that interest income at the rate of 12% on the deposit of Rs. 2,97,308, amounting to Rs. 35,677, accrued to the assessee and should be added to her total income. The assessee contended that no interest income accrued in the year of account due to the firm suffering heavy losses, and therefore, it was not disclosed as income.

2. Validity of the Agreement for Non-Charging of Interest:
The assessee provided an affidavit and letters indicating an agreement not to charge interest due to the firm's financial losses. The affidavit and the statement recorded by the ITO supported the claim that the assessee agreed not to charge interest from the firm, where all partners were her real sons. The Tribunal found the reasons provided by the assessee-sympathy for her sons and the firm's financial difficulties-reasonable and in accordance with the hard facts of life. The Tribunal concluded that the agreement not to charge interest was genuine and not collusive or sham.

3. Assessment of New Material Evidence:
Unlike in previous years, the ITO recorded the assessee's statement in detail for the assessment year 1978-79. The Tribunal emphasized that each year is independent and should be decided based on the material evidence available for that specific year. The new evidence, including the detailed statement of the assessee and the corroborating documents, was considered material and significant enough to alter the conclusion from previous years.

4. Comparison with Previous Years' Findings:
The Tribunal noted that in earlier years (1975-76, 1976-77, and 1977-78), the Tribunal had held that interest income did accrue to the assessee. However, the Tribunal also highlighted that each case must be judged on its own facts, and new material evidence in the current year warranted a different conclusion. The Tribunal cited various Supreme Court decisions to support the principle that earlier findings do not operate as res judicata and that each assessment year should be considered independently based on its evidence.

5. Concept of Income under the Income Tax Act:
The Tribunal discussed the concept of income under the Income Tax Act, emphasizing that income tax is a levy on actual income, not hypothetical income. The Tribunal referred to Supreme Court rulings, stating that income must have genuinely accrued or been received to be taxable. In this case, since no interest was credited in the firm's books and the assessee did not receive any interest, it was concluded that no income accrued to the assessee.

Conclusion:
The Tribunal concluded that in the assessment year 1978-79, no interest income accrued to the assessee from the deposits made in the firm M/s Ratilal Manakji. The agreement not to charge interest was found to be genuine, reasonable, and supported by material evidence. Consequently, the addition of Rs. 35,677 as interest income by the ITO was deleted, and the appeal was allowed.